Yergin has always known he was going to have to pivot.  This disaster provides the perfect opportunity.

Thanks for the link, PG. OK, here goes my first attempt to earn a Daniel Yergin Secret Decoder Ring.

Re: "an integrated energy disaster" and "The full extent of the Gulf of Mexico energy infrastructure is hard to grasp" -- he means that every loss has impacted every other loss and the immediate situation is fubar.

Re: "Our platforms and facilities are designed for a 100-year storm. But this storm was something else." -- I am gratified that this obsevation, which I made on Sunday before the storm, is confirmed here. Climate change, anyone?

...the SPR is proving its role--not as a tool of market management, but to offset a major disruption, protect gross domestic product, and maintain the viability of our economy...

Well, it looks like a market management tool from where I'm sitting. In fact, I believe it is the only thing keeping oil prices from going well over $70/barrel.

A package of responses, such as properly inflated tires, adherence to speed limits, consolidation of trips, and tune-ups, could cut gasoline consumption by 10% to 20%. This needs to be reiterated again and again, for modest restraint on demand is the quickest way to take the pressure off the market. The flexibility of markets and the resilience of the energy sector are the most effective antidotes to high prices and disruption. We can see markets working, also, in the substantial build-up of supply from around the world that will occur over the next few years.

OK, we're zeroing in on the heart of matter here. We need to conserve now and wait a couple of years for that supply windfall that's coming our way. Markets are not flexible or resilient now but they will be soon.

The rocks under the gulf are highly prospective, and companies will carry on applying capital and ingenuity to developing the resources--now planning not for the 100-year storm, but for a 200-year one. Oil production from the gulf could rise from two million barrels today to 2.4 million by 2010. That would mean the gulf's share of total U.S. oil production rising from today's 35% to 45%, although the recovery from Hurricane Katrina could end up pushing that level back a year or two.

In other words, I (Daniel Yergin) have learned nothing from Katrina. We will proceed with deep drilling in the Eastern GOMEX areas off Florida. There will not be anymore really big, intense hurricanes that we can't handle. We can engineer deep drilling infrastructure (platforms, rigs, pipelines) to withstand Category 5 hurricanes. The GOMEX future's so bright, I've got to wear shades!

...think more expansively about energy security...

But a host of developments--from terrorism to the California power crisis to the East Coast blackout to Katrina--have emphasized a return to what might be called the World War II model of energy security, assuring the security and integrity of the whole supply chain and infrastructure, from production to the consumer.

Despite the great windfall in excess capacity coming later, geopolitical necessity requires us to control the supply from the cradle to the grave, so to speak. Does anyone else find these two positions completely in opposition to each other?

By the way, here is an interesting related story Offshore Rig Rents Hit Record $400,000 a Day as Oil, Gas Rally (Bloomberg).

I like the term "integrated energy crisis" in the opening paragraph.  But despite this insight, Yergin goes on to suggest that with the combination of SPR and "market forces" the crisis will be short and relatively mild.  He does not elaborate on the impact on natural gas prices this winter.  

Regarding "market forces," the assumption is that with high U.S. jet fuel and gasoline prices, the European and Latin American refiners will sell their fuels in the U.S. instead of at home where margins are less.  (Presumably the differentiating fuel specs will be waived during this period.)  Perhaps that would be the case in the ideal capitalist world.  But no democratically elected leader (as in most Latin America today) will risk raising fuel prices at home for a good financial quarter at their state oil company.  We may see some more gasoline from Europe (where the gasoline demand is falling in favor of diesel), but certainly no middle distillates or fuel oil.

So however you look at it, this is going to be a rough winter.

Why does Yergin lie about what is and what will be going on in the GOM?  For example, he says that current production in the GOM is 2 million barrels per day, and that will expand to 2.4 million barrels by 2010.  That's complete crap.  The 2004 average production in the GOM was 1.46 million barrels per day, and for February, April, and May 2005 (the 3 months I could extract from mms), well removed from Ivan, the production was 1.455, 1.397, and 1.252 million barrels per day respectively.  The bottom line is that the 200,000 barrels per day he claimed to be down for "several months" after Ivan NEVER CAME BACK, either due to destruction, depletion, or whatever.  Katerina will similarly "reset" the production level to a much lower level, probably in the 1.1-1.2 million barrels per day range.  Even with the big projects coming on-line, when figuring in depletion I would be surprised if we see GOM production ever make it much above 1.5 million barrels per day again.

Yergin has a terminal case of the "Jimminy Cricket" syndrome ("wishing it will make it so!"), and the sad thing is that he is leading so many down the garden path on oil production.

Okay, Im a big picture guy.

For months this and other Peak oil sites have been stating the the entire oil and gas supply system is at capacity and is unable to grow to meet future increases in demands.

In fact there is concern that oil can not be increased enough to justify building new refinery capacity.  Those new refineries take too long to build and oil supply will drop (at least in the U.S.) before they are completed.  

I have read the above posts about other countries building refinery capacity but I assume a lot of that will be earmarked for that region.  Even if currently we import some of our gas from off shore.

The above scenario of looming shortages posted by PO people has always been offset by the likes of Yergin who state that there really isn't any supply problem.  Either long term or short term.  Capacity is sufficicent to meet demand.  Both crude supply and distillates.  We don't have more of both on the market because of price.  Increases in price will surely increase supply in the future if it looks like we have a shortage.  

And Yergin & Co. have said this will happen because there is still enough spare capacity in the system to cover short term emergencies or terror acts to allow the system to bring more supply on line.  With the resources going to either crude or refineries or both.

Okay so now we have the test case of Katrina which eliminated 1.3 mbd of crude and an equivalent amount of gasoline and natural gas because of impacted refineries.  All of a sudden Yergin changes his message and says "Oh but this is different because it impacted all of the system, not just crude oil'

Will someone at this site please explain this to me in plain language.  Either we had SPARE CAPACITY in the petroleum supply or we didn't. Since Katrina knocked out about the same percentage of Crude, Gasoline and NG supply all at once.  Why is this different than only knocking out one or two of those three?  Any surplus in the other streams wouldn't help you maintain supply.

I am greatly puzzled by this splitting of hairs in what constitutes surplus capacity.  Please explain.  Thanks.

Here's a question for someone with knowledge about the refinery business.  If some of these facilities have serious damage and essentially need to be rebuilt to a degree, is this an opportunity to configure them to handle the heavy or sour crude that seems to be sloshing around?  Or could they already do that?

It's a morbid thought but what if the roustabout and other skilled people the GOM relied on are no longer alive.  The personality that would work out there is the kind the would tough it out rather than evacuate.

I loved Daniel Yergin's THE PRIZE when I read it over ten years ago, and for a while considered him an expert in the history and economics of oil.  But after his COMMANDING HEIGHTS, it was down hill for him.  I don't know if it was all the consultation fees he started receiving from oil companies that spoiled him or what, but he really hasn't written anything good since.  

I sometimes get his Cambridge Energy Research Associates' reports at work and his analyses seem no better than any other Houston engergy consultant firm (like Purvin & Getrz, SRI, etc.).  Certainly not what you would expect from a Pulitzer Prize winner.  (And I am talking only analysis, not position on peak oil.)  

Halfin, there is one guy who is very well placed has warned about peak oil -- or at least oil supply issues -- for a long time and that is Kurt Wulff. Wulff was an oil & gas analyst with the late lamented stockbroking firm, Donaldson, Lufkin & Jenrette, for 16 years. His book, "How to Profit from the Coming Oil Crisis" is about 15 years old and its core recommendation -- to buy shares in domestic companies with long-lived natural gas deposits -- would have made excellent sense.  He now has his own independent equity research consultancy, McDep Associates. Stephen Leeb, an independent investment analyst and money manager who has something of a following among small investors, has also been warning about this, but is far less of a heavyweight and has been on the issue for less time. In my understanding of things, though, peak oil is still a minority view in the both the energy community and financial communities. I would agree that most oil industry analysts have been afraid to offend their customers who did not believe in peak oil, and understandably so. It's not just pandering; it's only human to keep your blinders on so you can get along and go along.

Halfin, another influential one who is late to the party -- but now more concerned than he used to be about peak oil -- is Philip Verleger, former chief economist of the Petroleum Industry Research Foundation. Certainly in his old incarnation as chief econoomist of a trade association, he promoted what was then the industry party line. That no longer appears to be true.